A seven-step framework for deciding what a car really costs
Step 1 - define the transport need
Start with mileage, passengers, luggage, reliability, commuting and practical requirements. Finance availability should not decide how much car you need.
Step 2 - calculate the all-in monthly cost
Add finance, insurance, fuel or charging, tax, servicing, tyres, parking and a repair allowance. Compare that number with your true monthly surplus.
Step 3 - compare the financing structures on the same basis
Compare cash, personal loan, hire purchase, PCP and keeping the existing car. Record deposit, monthly payments, term, fees, final payment and whether you own an asset at the end.
Example
A PCP at £330 a month can look cheaper than HP at £455. If the PCP also requires a £4,000 deposit and a £13,000 final payment to own the car, the two offers are solving different cash-flow problems. Compare the total cost and end position, not £330 versus £455.
Step 4 - model depreciation
Estimate a cautious resale value. Depreciation can be one of the largest ownership costs even though it never appears as a monthly bill.
Step 5 - compare with keeping the current car
Use expected future repair and maintenance costs rather than the amount you paid for the existing car. Past purchase price is a sunk cost.
Step 6 - inspect contract restrictions
For PCP and lease agreements, check mileage limits, condition charges, early termination, servicing requirements and the final-payment mechanics.
Things to consider
- Total amount payable
- Expected value of the vehicle at the end
- Insurance difference
- Repair risk and warranty
- Emergency cash remaining after any deposit
- Whether the monthly payment would still be comfortable after a drop in income
Step 7 - protect cash outside the car
A larger deposit lowers finance but may weaken your emergency reserve. Compare both the borrowing benefit and the liquidity you give up.